Infrastructure and Inequality

Abstract

An adequate supply of infrastructure services has long been considered essential for economic development by both academics and policymakers. This article reviews recent theoretical and empirical literature on the effects of infrastructure development on income distribution. The theoretical literature has employed a variety of analytical settings regarding the dynamics of income distribution, the extent of market distortions – notably in capital markets – and the externalities surrounding infrastructure services. In turn, the empirical literature has tested for the distributive effects of infrastructure development using multiple approaches, from cross-country aggregate data to micro-level studies of specific infrastructure interventions. However, these empirical tests face challenging issues of measurement, identification and heterogeneity. Overall, the empirical evidence suggests that infrastructure development may have a positive effect on distributive equity. Still, little is known about the likely magnitude of such an effect and the precise mechanisms through which it may accrue.

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Acknowledgments

We thank Jon Temple for useful comments and suggestions. The views expressed here are ours only and do not necessarily reflect those of the World Bank, its Executive Directors, or the countries they represent.

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